Thursday, March 22, 2012

2011 Sees Another Large Increase In Foreign Investment In Iraq

Since Iraq’s civil war ended in 2008, its economy has begun to take off. The World Bank and others have predicted that it will be one of the fastest developing nations in the next several years with double digit Gross Domestic Production (GDP) growth. That’s because the country needs so many basic forms of infrastructure, and its oil and gas industries are finally beginning to be developed after over a decade of international sanctions. Foreign investment has grown over 40% for the last two years, but there are still major problems with completing some of the larger projects that are planned by the government.

2011 saw another large increase in the amount of foreign money being invested in Iraq. There was a total of $55.67 billion in investment last year. That was up 40.3% from 2010’s $39.67 billion. 2010’s amount was a 48.7% increase from 2009. 276 companies from 45 countries did business with Iraq in 2011. The total number of contracts also grew to 294, up 80.4% from the 164 signed in 2010. It was also the reason why several experts believed that Iraq would be one of the fastest growing economies in the world over the next several years. In January 2012 for instance, the World Bank estimated that Iraq’s Gross Domestic Product (GDP) would grow 12.6% for the year, and 10.2% in 2013. The Deputy Governor of the Central Bank of Iraq predicted an average of 9.4% GDP growth from 2012-2016. The large growth rates and amount of money flowing into the country is because international sanctions have finally been removed, the Iraqi civil war ended in 2008, and the country has so many needs. This showed that despite the U.S. troop withdrawal, continued violence, and the on-going political dispute between Prime Minister Nouri al-Maliki and his opponents, business in the country is still flourishing.

Before 2008, investment in Iraq went up and down, and was at a very low level. In 2003, the first year after the fall of Saddam Hussein, only $3.87 billion was invested in the country. That almost doubled to $6.74 billion the next year, but then dropped to an anemic $1.17 billion in 2005 as the civil conflict took off. 2006 saw a large increase to $5.05 billion, before dropping to $2.70 billion in 2007. It wasn’t until 2008, that investment reached double digits to $17.93 billion. It has grown every year since then. Again, foreign money flowing into the country was directly related to the security situation within the country. With violence reduced to terrorism the amount of investment can only continue to grow.

Foreign Investment In Iraq 2003-2011

Year

Investment

2003

$3.87 bil

2004

$6.74 bil

2005

$1.17 bil

2006

$5.05 bil

2007

$2.70 bil

2008

$17.93 bil

2009

$28.70 bil

2010

$39.67 bil

2011

$55.67 bil

Another positive development was the increasingly smaller size of projects planned for the country. That might seem an oxymoron, but Iraq has faced major problems with large development plans. The smaller the project, the greater likelihood that they will be completed as planned. The average size of deals signed with Iraq went from $243 million in 2010 to $189 million in 2011. That continued the trend started in 2010 when contracts saw an even larger reduction from an average of $683 million to $260 million. Larger deals can drag on for years past their original deadlines, run into delays, and fall apart. This is due to problems with finances, logistics, bureaucracy, and the lack of trained personnel within the Iraqi government.

Investment is also being spread around the country. Before, Baghdad and Basra took the lion’s share of money. While they are still number one and two, the rest of the country is also experiencing development. In 2011, Basra received the most foreign capital, surpassing Baghdad, which was number one in 2010. Their share of total investment in the country also declined from 74.3% in 2010 to 47.0% last year. The three Kurdish provinces were third in 2011 with 14.5% of total investment, and then Ninewa, 9.4%, and Salahaddin, 6.4%. This was an important trend, because Iraq’s other provinces are in desperate need of growth with poor services, and the highest rates of poverty.

While Iraq’s economy is the most oil dependent country in the region, real estate was the largest field invested in for the second year in a row. A total of $14.524 billion was committed to housing in 2011, 26.1% of all foreign money. It’s estimated that Iraq needs to build 650,000 houses per year to meet the demand of its public, but it is no where near achieving that goal. It should be no surprise then that the largest deal last year was for $7.25 billion with South Korea’s Hanwha to construct 100,000 housing units east of Baghdad.

Foreign Investment In Iraq By Sector 2011

Sector

Value ($ mil)

% Total

Real Estate

$14,524

26.1%

Oil and Gas

$12,769

22.9%

Electricity

$11,196

20.1%

Water & Sanitation

$4,285

7.7%

Defense

$2,850

5.1%

Real Estate

$2,433

4.4%

Telecommunications

$2,063

3.7%

Industry

$1,919

3.4%

Transportation

$1,213

2.2%

Tourism

$844

1.5%

After real estate, oil and gas and electricity were the next biggest industries invested in. The second largest deal for 2011 was with Royal Dutch Shell and Mitsubishi to capture natural gas from oil fields in southern Iraq. It will include $12.8 billion in infrastructure and a $4.4 billion natural gas plant. Iraq also signed deals to build new pipelines and mooring points for Basra province, which accounts for the vast majority of the country’s oil exports. While these deals are moving ahead, and oil production is ramping up in the country, the same cannot be said for the electricity field. Last year, the Electricity Ministry signed a $1.2 billion deal with a fake Canadian company to build 10 power plants, and with a bankrupt German one for five power plants worth $650 million. Another contract with South Korea’s STX Group also ran into problems. Originally, it was supposed to build 25 mini-power plants in southern Iraq worth $2.76 billion. STX couldn’t come up with the financing however, so the deal was reconfigured to build nine regular power plants instead. Then in November 2011, the Electricity Ministry announced that it and STX had come to final terms for $1.044 billion to build power plants in three provinces. Not only that, but the Ministry’s plans to solve the country’s chronic electricity shortages are nowhere near coming to fruition. New Electricity Minister Abdul Karim Aftan said that power output would increase by the summer of 2012, and that the country’s power problems would be solved by 2014. By 2015, he claimed that the country would be producing 27,000 megawatts. An independent assessment found that this will not be possible. It predicted that Iraq would have the capacity of only 18,000 megawatts by 2015, and that none of the new power plants planned would come on line until 2013, not this summer. That means there will still be years of power outages that affects not only the public, but the economy as well. The Ministry needs to step away from such large deals, and set more achievable goals, but because the government is under such pressure to solve this problem, it doesn’t seem capable of doing that yet for political reasons.

In terms of countries investing in Iraq, South Korea surpassed Turkey as the largest source of funds. South Korea went from fourth largest investor in 2010 to number one in 2011. It committed $11.988 billion last year, 21.5% of the total. That was due to the $7.25 billion housing deal with Hanwha. Then came the U.S. with $6.878 billion. $2.3 billion of that was with Lockheed Martin for F-16 fighter jets. America was number five in 2010. Turkey was number one that year, but dropped to fifth in 2011. That’s because the majority of deals it signed last year were under $1 billion. The list of top investors shows that Iraq is attracting companies from around the world.

Foreign Investment In Iraq By Country 2011

Country

Value ($ mil)

% of total

South Korea

$11,988

21.5%

U.S.

$6,878

12.4%

England

$4,096

7.4%

Netherlands

$3,825

6.9%

Turkey

$3,694

6.6%

Germany

$3,172

5.7%

China

$3,093

5.6%

UAE

$2,959

5.3%

Italy

$2,829

5.1%

Iran

$2,184

3.9%

Iraq’s economy has grown in leaps and bounds in the last couple years. That’s largely fueled by the oil industry, which accounts for 90% of the government’s revenue, and the improvement in security. With that, Baghdad has been able to sign hundreds of deals with foreign companies to repair its infrastructure, and expand its production of petroleum and natural gas. The government is also slowly but surely weaning itself of large, unwieldy projects, many of which fail to materialize. Still, the country is years away from achieving any of its lofty goals for things such as housing and electricity. As long as oil remains at a high price, Iraq will have the funds to sign more deals to try to resolve these issues as it has to make up for a lost decade when it suffered under international sanctions, and then five years of invasion and civil war. That’s the reason why Iraq will be one of the fastest growing countries in the world for the next several years.

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About Me

Musings On Iraq was started in 2008 to explain the political, economic, security and cultural situation in Iraq via original articles and interviews. I have written for the Jamestown Foundation, Tom Ricks’ Best Defense at Foreign Policy and the Daily Beast, and was responsible for a chapter in the book Volatile Landscape: Iraq And Its Insurgent Movements. My work has been published in Iraq via AK News, Al-Mada, Sotaliraq, All Iraq News, and Ur News, and I have been interviewed by Rudaw English. I was interviewed on CCTV and TRT World News TV, and have appeared in CNN, the Christian Science Monitor, The National, Columbia Journalism Review, Mother Jones, PBS’ Frontline, the Center for Strategic and International Studies, the Institute for the Study of War, Radio Free Iraq, and others. I have also been cited in Iraq From war To A New Authoritarianism by Toby Dodge, Imagining the Nation Nationalism, Sectarianism and Socio-Political Conflict in Iraq by Harith al-Qarawee, ISIS Inside the Army of Terror by Michael Weiss and Hassan Hassahn, The Rise of the Islamic State by Patrick Cocburn, and others. If you wish to contact me personally my email is: motown67@aol.com